“The greatest trick the Devil ever pulled was convincing the world he didn’t exist”.

Charles Baudelaire.

The last few weeks have been interesting in markets and it’s time for my (short) take :). The best take on this topic is Matt Levine’s Money stuff newsletter. My take is about risk which is core to finance. I highly recommend my favorite book on this topic – Pandora’s risk for an excellent introduction to risk and how to think about it. Risk in the finance world is always about loss of capital. At the end of the day, finance is about money and the golden rule of money is to never lose it 😂. Every financial transaction we undertake has a risk of capital loss. These last few weeks have been a crash course in counterparty risk (DTCC clearing et al).

Continue reading “Risk rules everything around me” →

Does a sovereign backed digital currency matter?

It’s a question I’ve been brooding about ever since the European central bank announced its digital euro project. But first, let’s take a walk through memory lane and establish some concepts and abstractions to build upon.

Humans at our core are consumers and consumption is central in our economic model. Consumption drives everything. We have needs and wants and we want them fulfilled. Businesses are the organizational unit that builds the goods to satisfy these needs and wants. They produce the goods that customers want. Money is the grease that makes this machine work, it’s the unit of exchange. At steady-state consumers need to have a source of money which is either from some form of employment (trading time for money) or via borrowing (trading collateral for money i.e credit). Consumers can either save, invest, or spend the money that they have. Savings and investment are just steps on the way to spend. The end state is always to spend down the cash and exchange it for goods and services.

Continue reading “Sovereign digital currencies | The next frontier in fintech? Part 1” →

Alphachat (great podcast btw) had a recent episode on Labor market slack that raised some intriguing questions. The central question is how to define slack, what is the right metric. The end result was that slack means different things to different people – but there is one thread that I’d like to explore more.

Let’s start with the concept of NAIRU (non-accelerating inflation rate of unemployment). Wikipedia defines it as “NAIRU refers to a level of unemployment below which inflation rises”. Central Bank Monetary policy is always and forever worried about inflation. The expected cycle is that as unemployment falls, wages will rise as supply of workers is constrained – less supply, more depends, prices i.e wages have to rise. When wages rise, input costs for producers rise which they will pass on the end consumers. Thus the general price level of the economy will rise hence leading to inflation. Continue reading “The GFC changed us as a generation – adventures in labour market slack” →